<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
X Quarterly Report pursuant to section 13 or 15(d) of the Securities
---
Exchange Act of 1934 for the quarterly period ended September 30, 2000
------------------
or
___ Transition Report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from to
----------- --------------
Commission File No. 000-16723
RESPIRONICS, INC.
(Exact name of registrant as specified in its charter)
Delaware 25-1304989
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
1501 Ardmore Blvd.
Pittsburgh, Pennsylvania 15221
(Address of principal executive offices) (Zip Code)
(Registrant's Telephone Number, including area code) 412-731-2100
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
at least the past 90 days. Yes X No .
--- ---
As of October 31, 2000, there were 33,273,460 shares of Common Stock of the
registrant outstanding, of which 3,748,852 were held in treasury.
<PAGE>
INDEX
RESPIRONICS, INC.
PART I - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements (Unaudited).
Independent Accountants' Review Report
Consolidated balance sheets -- September 30, 2000 and June 30, 2000.
Consolidated statements of operations -- Three months ended September
30, 2000 and 1999.
Consolidated statements of cash flows -- Three months ended September
30, 2000 and 1999.
Notes to consolidated financial statements - September 30, 2000.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings.
Item 2. Changes in Securities.
Item 3. Defaults Upon Senior Securities.
Item 4. Submission of Matters to a Vote of Security Holders.
Item 5. Other Information.
Item 6. Exhibits and Reports on Form 8-K.
SIGNATURES
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1
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Independent Accountants' Review Report
Board of Directors
Respironics, Inc. and Subsidiaries
We have reviewed the accompanying condensed consolidated balance sheet of
Respironics, Inc. and Subsidiaries as of September 30, 2000, and the related
condensed consolidated statements of operations for the three month periods
ended September 30, 2000 and 1999, and the condensed consolidated statements of
cash flows for the three month periods ended September 30, 2000 and 1999. These
financial statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data, and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with auditing standards generally accepted in the United States,
which will be performed for the full year with the objective of expressing an
opinion regarding the financial statements taken as a whole. Accordingly, we do
not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying condensed consolidated financial statements referred
to above for them to be in conformity with accounting principles generally
accepted in the United States.
We have previously audited, in accordance with auditing standards generally
accepted in the United States, the consolidated balance sheet of Respironics,
Inc. and Subsidiaries as of June 30, 2000, and the related consolidated
statements of operations, shareholders' equity, and cash flows for the year then
ended not presented herein and in our report dated July 25, 2000, we expressed
an unqualified opinion on those consolidated financial statements. In our
opinion, the information set forth in the accompanying condensed consolidated
balance sheet as of June 30, 2000, is fairly stated, in all material respects,
in relation to the consolidated balance sheet from which it has been derived.
/s/ Ernst & Young LLP
Pittsburgh, Pennsylvania
October 24, 2000
2
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CONSOLIDATED BALANCE SHEETS (UNAUDITED)
RESPIRONICS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
September 30 June 30
2000 2000
-------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and short-term investments $ 19,669,200 $ 19,594,484
Trade accounts receivable, less allowance for
doubtful accounts of $17,659,000 and $17,975,000 95,069,205 96,733,695
Inventories 68,474,887 67,769,192
Prepaid expenses and other 7,253,275 6,568,646
Deferred income tax benefits 18,229,782 18,229,780
----------------- -----------------
TOTAL CURRENT ASSETS 208,696,349 208,895,797
PROPERTY, PLANT AND EQUIPMENT
Land 3,061,203 3,061,203
Building 11,680,067 12,292,111
Machinery and equipment 73,161,950 67,293,530
Furniture, office and computer equipment 51,312,652 49,142,950
Leasehold improvements 3,330,762 2,613,240
----------------- -----------------
142,546,634 134,403,034
Less allowances for depreciation
and amortization 72,485,188 67,618,053
----------------- -----------------
70,061,446 66,784,981
OTHER ASSETS 14,539,444 14,558,526
GOODWILL 62,614,869 62,762,589
----------------- -----------------
$ 355,912,108 $ 353,001,893
================= =================
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
September 30 June 30
2000 2000
-----------------------------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 26,388,607 $ 27,302,609
Accrued expenses and other 23,336,068 25,091,742
Current portion of long-term obligations 1,332,331 1,406,556
---------------- ----------------
TOTAL CURRENT LIABILITIES 51,057,006 53,800,907
LONG-TERM OBLIGATIONS 107,831,563 108,095,093
COMMITMENTS 0 0
SHAREHOLDERS' EQUITY
Common Stock, $.01 par value; authorized
100,000,000 shares; issued and outstanding
33,251,515 shares at September 30, 2000 and
33,182,565 shares at June 30, 2000 332,515 331,826
Additional capital 111,367,938 110,795,650
Accumulated other comprehensive loss (4,107,615) (3,131,703)
Retained earnings 132,752,889 126,462,237
Treasury stock (43,322,188) (43,352,117)
---------------- ----------------
TOTAL SHAREHOLDERS' EQUITY 197,023,539 191,105,893
---------------- ----------------
$ 355,912,108 $ 353,001,893
================ ================
</TABLE>
See notes to consolidated financial statements.
4
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CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
RESPIRONICS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Three months ended
September 30 September 30
2000 1999
------------------------------------------------
<S> <C> <C>
Net sales $ 92,064,204 $ 80,599,327
Cost of goods sold 48,661,952 43,436,198
Cost of goods sold - restructuring charges 0 4,576,352
---------------- ----------------
GROSS MARGIN 43,402,252 32,586,777
General and administrative expenses 10,869,663 10,156,392
Sales, marketing and commission expenses 16,823,393 14,681,396
Research and development expenses 3,371,149 4,325,772
Restructuring charges 0 10,102,426
Interest expense 2,149,124 1,425,615
Other income (295,498) (514,259)
---------------- ----------------
32,917,831 40,177,342
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INCOME (LOSS) BEFORE INCOME TAXES 10,484,421 (7,590,565)
Income taxes 4,193,769 (3,036,226)
---------------- ----------------
NET INCOME (LOSS) $ 6,290,652 $ (4,554,339)
================ ================
Basic earnings (loss) per share $ 0.21 $ (0.15)
================ ================
Basic shares outstanding 29,477,044 30,261,516
Diluted earnings (loss) per share $ 0.21 $ (0.15)
================ ================
Diluted shares outstanding 30,289,365 30,261,516
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
RESPIRONICS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Three Months Ended September 30
2000 1999
--------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 6,290,652 $ (4,554,339)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 6,718,669 6,751,065
Asset write-offs 0 6,755,563
Changes in operating assets and liabilities:
Decrease in accounts receivable 1,664,491 2,998,922
Increase in inventories (705,695) (3,841,421)
Change in other operating assets and liabilities (5,066,577) (3,781,575)
---------------- ----------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 8,901,540 4,328,215
INVESTING ACTIVITIES
Purchase of property, plant and equipment (8,304,395) (6,977,678)
Additional purchase price for acquired business (787,580) (1,085,407)
---------------- ----------------
NET CASH USED BY
INVESTING ACTIVITIES (9,091,975) (8,063,085)
FINANCING ACTIVITIES
Net (decrease) increase in borrowings (337,755) 559,053
Issuance of common stock 572,977 39,921
Acquisition of treasury stock, net 29,929 (1,330,185)
Decrease in minority interest 0 (766,035)
---------------- ----------------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES 265,151 (1,497,246)
---------------- ----------------
INCREASE (DECREASE) IN CASH AND
SHORT-TERM INVESTMENTS 74,716 (5,232,116)
Cash and short-term investments at beginning of period 19,594,484 23,651,401
---------------- ----------------
CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD $ 19,669,200 $ 18,419,285
================ ================
</TABLE>
See notes to consolidated financial statements.
6
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
RESPIRONICS, INC. AND SUBSIDIARIES
September 30, 2000
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three months ended September 30, 2000
are not necessarily indicative of the results that may be expected for the year
ended June 30, 2001. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the year ended June 30, 2000.
NOTE B -- INVENTORIES
The composition of inventory is as follows:
<TABLE>
<CAPTION>
September 30 June 30
2000 2000
----------- -----------
<S> <C> <C>
Raw materials $21,254,000 $21,561,000
Work-in-process 5,279,000 5,825,000
Finished goods 41,942,000 40,383,000
----------- -----------
$68,475,000 $67,769,000
=========== ===========
</TABLE>
NOTE C -- CONTINGENCIES
As previously disclosed, the Company is party to actions filed in a Federal
District Court in January 1995 and June 1996 in which a competitor alleges that
the Company's manufacture and sale in the United States of certain products
infringes four of the competitor's patents. In its response to these actions,
the Company has denied the allegations and has separately sought judgment that
the claims under the patents are invalid or unenforceable and that the Company
does not infringe upon the
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patents. The January 1995 and June 1996 actions have been consolidated, and
discovery is ongoing. The Court has granted the Company's various motions for
summary judgment and held that the Company does not infringe any of the
competitor's four patents at issue. The competitor may seek an appeal of those
decisions. In any event, the Company intends to continue to pursue its claims
that the competitor's patents are invalid or unenforceable.
The Company is, as a normal part of its business operations, a party to other
legal proceedings in addition to those previously described by filings of the
Company. Legal counsel has been retained for each proceeding and none of these
proceedings is expected to have a material adverse impact on the Company's
results of operations or financial condition.
NOTE D -- RESTRUCTURING CHARGES
In July 1999, the Company announced a major restructuring of its U.S.
operations. The major components of the restructuring included the closing of
the Westminster, Colorado manufacturing facility, the closing of 19 customer
satisfaction centers throughout the United States, the downsizing of the
Marietta, Georgia manufacturing facilities, the opening of a centralized
distribution and repair center in Youngwood, Pennsylvania, the realignment of
the Company into four divisions with a corresponding management realignment, and
a workforce reduction of approximately 10% associated with the facility changes
and the realignment. The facility changes and workforce reduction were
completed during fiscal year 2000, and the divisional realignment is currently
in place.
RECONCILIATION OF RESTRUCTURING RESERVES
<TABLE>
<CAPTION>
Employee Lease Buyouts
Severance Asset & Other Direct Total
Costs Write-Downs Expenses Restructuring
------------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Balance at July 1, 1999 $ - $ - $ - $ -
Restructuring charges (net) 6,300,000 8,900,000 14,000,000 29,200,000
Cash expenditures (3,100,000) - (12,900,000) (16,000,000)
Noncash expenditures - (1,700,000) - (1,700,000)
-------------- ------------ ------------- -------------
Balance at June 30, 2000 3,200,000 7,200,000 1,100,000 11,500,000
-------------- ------------ ------------- -------------
Restructuring charges (net) - - - -
Cash expenditures (400,000) - (400,000) (800,000)
Noncash expenditures - (700,000) - (700,000)
-------------- ------------ ------------- -------------
Balance at September 30, 2000 $ 2,800,000 $ 6,500,000 $ 700,000 $ 10,000,000
============== ============ ============= =============
</TABLE>
During fiscal year 2000, the Company incurred a total of $29,200,000 in charges
related to this restructuring. The primary components of these charges were
severance and employment related costs ($6,300,000), asset write-downs to
reflect decisions made regarding product, facility, and systems rationalization
($8,900,000), and lease buyouts related to facility rationalizations and other
direct expenses of the restructuring ($14,000,000). Restructuring costs incurred
but not yet paid have been credited to accrued expense and asset write-downs
have been credited against the applicable asset accounts. Substantially all of
the remaining restructuring accruals as of September 30, 2000 will be paid out
during the next two years.
8
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NOTE E - COMPREHENSIVE INCOME (LOSS)
The components of comprehensive income (loss), net of tax, were as follows:
Three Months Ended
September 30, September 30,
2000 1999
----------- -------------
Net income (loss) $ 6,291,000 $ (4,554,000)
Foreign currency translation losses (976,000) (165,000)
------------- -------------
Comprehensive income (loss) $ 5,315,000 $ (4,719,000)
============= =============
NOTE F - SPECIAL ITEMS
As previously disclosed, in February 2000, the parent company of one of the
Company's major customers filed a voluntary petition to reorganize under Chapter
11 of the U.S. Bankruptcy Code. The Company's customer was one of the entities
included in the filing. According to press releases issued in connection with
the filing and discussions with the customer, the election to seek court
protection was made in order to facilitate the restructuring of the parent
company's capital and lease obligations and normal business operations of the
Company's customer are continuing. The Company's total balance due from the
customer at the date of the filing was approximately $4,500,000, and
accordingly, the Company has recorded a $4,500,000 special increase to the
allowance for doubtful accounts during fiscal year 2000. In November 2000, the
Company reached a settlement with the customer under which the customer will pay
a portion of the petition-date balance in monthly installments over six months.
The remaining petition-date balance will constitute a claim in the continuing
bankruptcy case.
NOTE G - RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities." As
amended by FASB Statement No. 137, "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133,"
FASB No. 133 was required to be adopted as of the first quarter of fiscal year
2001. The Company adopted FASB No. 133 on July 1, 2000. The statement
required, among other things, derivative instruments to be recorded at market
value, with changes in fair value reflected in earnings to the extent the
derivative instruments do not qualify as hedges in accordance with the
statement. Because of the Company's minimal use of derivative instruments, the
adoption of FASB No. 133 on July 1, 2000 had no financial impact on the Company,
and management believes that FASB No. 133 will not have a material impact on
earnings during fiscal year 2001.
9
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CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES REFORM ACT OF 1995.
The statements contained in this Quarterly Report on Form 10-Q,
specifically those contained in Item 2 "Management's Discussion and Analysis of
Financial Condition and Results of Operations", along with statements in other
reports filed with the Securities and Exchange Commission, external documents
and oral presentations which are not historical are "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21B of the Securities and Exchange Act of 1934, as amended. These
forward-looking statements represent the Company's present expectations or
beliefs concerning future events. The Company cautions that such statements are
qualified by important factors that could cause actual results to differ
materially from those in the forward-looking statements. Results actually
achieved may differ materially from expected results included in these
statements. Those factors include, but are not limited to, the following:
foreign currency fluctuations, regulations and other factors affecting
operations and sales outside the United States including potential future
effects of the change in sovereignty of Hong Kong, customer consolidation and
concentration, increasing price competition and other competitive factors in the
sale of products, the success of programs, interest rate fluctuations,
intellectual property and related litigation, other litigation, FDA and other
government regulation, third party reimbursement, restructuring activities, and
anticipated cost savings.
10
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
Net sales for the quarter ended September 30, 2000 were $92,064,000
representing a 14% increase over the sales of $80,599,000 recorded for the
quarter ended September 30, 1999. Increases in unit and dollar sales for the
Company's sleep apnea therapy devices (the Company's largest product line) and
oxygen concentrator devices, as well as increases in the sales of masks and
other accessories, helped to drive the increase in sales for the quarter. These
product lines, along with ventilation devices, comprise the major part of the
Company's homecare division established as part of the July 1999 restructuring
plan. Sales of the Company's hospital products also increased during the current
quarter, including unit and dollar increases for the Company's BiPAP/R/
Vision/TM/ and Esprit/R/ ventilators.
Partially offsetting this increase in sales was a decrease in domestic
sales, compared to prior year levels, of the Company's non-invasive ventilatory
support devices for use in the home. These sales decreases were caused by the
previously disclosed October 1, 1999 implementation of revised government
insurance coverage guidelines for the home use of these products in the United
States and the corresponding reduction in purchases of these units by the
Company's dealer customers. For the quarter ended September 30, 2000, sales of
non-invasive ventilatory support units for home use in the United States
accounted for approximately four percent of total sales.
The Company's gross profit was 47% of net sales for the quarter ended
September 30, 2000 compared to 46% of net sales, excluding the impact of
restructuring charges, for the quarter ended September 30, 1999. This gross
profit percentage increase was due primarily to higher revenue levels, sales mix
and the positive impact of the Company's restructuring activities in the
manufacturing area.
General and administrative expenses were $10,870,000 (12% of net sales) for
the quarter ended September 30, 2000 as compared to $10,156,000 (13% of net
sales) for the quarter ended September 30, 1999. The increase in absolute
dollars of general and administrative expenses was due primarily to an increase
in information technology department expenses and other spending consistent with
the growth of the Company's business. Partially offsetting these increases in
expenses were lower operating expenses due to the Company's restructuring.
Sales, marketing and commission expenses were $16,823,000 (18% of net
sales) for the quarter ended September 30, 2000 as compared to $14,681,000 (18%
of net sales) for the quarter ended September 30, 1999. The increase in absolute
dollars of expense for the current quarter was due primarily to increased sales
and activity
11
<PAGE>
levels in the Company's homecare and hospital product lines in the first
quarter, partially offset by lower operating expenses due to the Company's
restructuring.
Research and development expenses were $3,371,000 (4% of net sales) for the
quarter ended September 30, 2000 as compared to $4,326,000 (5% of net sales) for
the quarter ended September 30, 1999. The decrease in absolute dollars of
expense for the current quarter was due primarily to the timing of certain
research and development projects and the impact of certain new products
transitioning from development into production. Significant product development
efforts are ongoing and a variety of new products were introduced during the
current quarter, including two upgrades to the Company's Esprit/R/ ventilator.
New product launches in many of the Company's major product lines are scheduled
for the remainder of fiscal year 2001. Additional development work and clinical
trials are being conducted in certain product areas outside the Company's
current core products.
During the three months ended September 30, 1999, the Company incurred
charges of $14,700,000 related to a previously disclosed restructuring. The
primary components of these costs were severance and employment related costs,
asset write-downs to reflect decisions made regarding product, facility, and
systems rationalization, and lease buyouts related to facility rationalizations
and other direct expenses of the restructuring. Approximately $4,600,000 of
these charges related to inventory write-offs in connection with product
rationalizations and have been reported as a separate component of cost of goods
sold. See Note D to the Consolidated Financial Statements for additional
information about the restructuring charges.
The Company's effective income tax rate was 40% for all periods presented.
As a result of the factors described above, the Company's net income was
$6,291,000 (7% of net sales) or $0.21 per diluted share for the quarter ended
September 30, 2000 as compared to a net loss of ($4,554,000) (6% of net sales)
or ($0.15) per diluted share for the quarter ended September 30, 1999.
Excluding the impact of the restructuring charges, the Company's net income for
the quarter ended September 30, 1999 was $4,253,000 (5% of net sales) or $0.14
per diluted share.
Earnings per share amounts for the quarters ended September 30, 2000 and
1999 reflect the impact of shares repurchased under the Company's stock buyback
program which is described below.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $157,639,000 at September 30, 2000 and
$155,095,000 at June 30, 2000. Net cash provided by operating activities was
$8,902,000 for the three months ended
12
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September 30, 2000 as compared to $4,328,000 for the three months ended
September 30, 1999. The increase in cash provided by operating activities for
the current quarter was primarily due to higher earnings and reduced inventory
growth as compared to the prior year.
Net cash used by investing activities was $9,092,000 for the three months
ended September 30, 2000 as compared to $8,063,000 for the three months ended
September 30, 1999. Cash used by investing activities for both periods include
capital expenditures, including the purchase of leasehold improvements,
production equipment, computer hardware and software, and telecommunications and
office equipment. In addition, cash used by investing activities in the periods
described includes additional purchase price paid for a previously acquired
business pursuant to the terms of that acquisition agreement. The funding for
investment activities in both periods was provided by positive cash flow from
operating activities, accumulated cash and short-term investments, and
borrowings under long-term obligations.
Net cash provided by financing activities includes borrowings and
repayments under the Company's various long-term obligations, proceeds from the
issuance of common stock under the Company's stock option plans, and the
acquisition of treasury stock. The Company has been repurchasing shares of its
outstanding common stock since August 1998 pursuant to a series of Board of
Directors' actions that have authorized stock buy backs totaling 4,000,000
shares. During the three months ended September 30, 1999, the Company's buy
back activity resulted in net use of cash of $1,330,000. No shares were
repurchased during the three months ended September 30, 2000. Through September
30, 2000, the Company repurchased, net of share usage, a total of 3,680,000
shares under these buybacks. Shares that are repurchased are added to treasury
shares pending future use and reduce the number of shares outstanding used in
calculating earnings per share.
In July 1999, the Company announced a major restructuring of its U.S.
operations that included facility closings and downsizings, a divisional and
management realignment, and an approximate ten percent workforce reduction
associated with those changes. The restructuring activities have been completed
and restructuring charges totaling $29,200,000 were recorded during the fiscal
year ended June 30, 2000. See Note D to the Consolidated Financial Statements
for an analysis of these charges, including the reserve balances relating to
these charges that remain at September 30, 2000. The reserves shown for employee
severance, lease buyouts, and other direct expenses will require corresponding
cash expenditures in future periods. The Company does not expect to incur
additional charges in respect to this restructuring. As previously disclosed,
annualized savings associated with the restructuring are expected to be
approximately $10,000,000. These savings began to be realized primarily during
the third quarter of fiscal year 2000. These cost savings are expected to
positively impact cost of sales, general and administrative
13
<PAGE>
expenses, and sales and marketing expenses, and will be offset to some extent by
planned increases in those expenses consistent with expected increases in sales
in future periods and the Company's continuing investment in the business.
The Company believes that projected positive cash flow from operating
activities, the availability of additional funds (totaling approximately
$20,000,000 at September 30, 2000) under its revolving credit facility, and its
accumulated cash and short-term investments will be sufficient to meet its
current and presently anticipated future needs for the remainder of fiscal year
2001 for operating activities (including payments against restructuring
accruals), investing activities, and financing activities (primarily consisting
of payments on long-term debt).
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
The Company is exposed to market risk from changes in interest rates and
foreign exchange rates.
Interest Rates: The Company's primary interest rate risk relates to its
long-term debt obligations. At September 30, 2000, the Company had total long-
term debt obligations, including the current portion of those obligations, of
$109,164,000. Of that amount, $2,904,000 was in fixed rate obligations and
$106,260,000 was in variable rate obligations. Assuming a 10% increase in
interest rates on the Company's variable rate obligations (i.e. an increase from
the September 30, 2000 weighted average interest rate of 7.32% to a weighted
average interest rate of 8.05%), annual interest expense would be approximately
$778,000 higher based on the September 30, 2000 outstanding balance of variable
rate obligations. The Company has no interest rate swap or exchange agreements.
Foreign Exchange Rates: Information relating to the sensitivity to foreign
currency exchange rate changes is omitted because foreign exchange exposure risk
has not materially changed from that disclosed in the Company's Annual Report on
Form 10-K for the year ended June 30, 2000.
Inflation
Inflation has not had a significant effect on the Company's business during
the periods discussed.
14
<PAGE>
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities." As amended by FASB Statement No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133," FASB No. 133 was required to be adopted as of the first
quarter of fiscal year 2001. The Company adopted FASB No. 133 on July 1, 2000.
The statement required, among other things, derivative instruments to be
recorded at market value, with changes in fair value reflected in earnings to
the extent the derivative instruments do not qualify as hedges in accordance
with the statement. Because of the Company's minimal use of derivative
instruments, the adoption of FASB No. 133 on July 1, 2000 had no financial
impact on the Company, and management believes that FASB No. 133 will not have a
material impact on earnings during fiscal year 2001.
In December 1999, the Staff of the Securities and Exchange Commission
released Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition," to
provide guidance on the recognition, presentation, and disclosure of revenues in
financial statements. This statement will become effective during the fourth
fiscal quarter of fiscal year 2001.
PART 2 OTHER INFORMATION
Item 1: Legal Proceedings
------- -----------------
The Company is, as a normal part of its business operations, a party to
other legal proceedings in addition to those previously described by filings of
the Company. Legal counsel has been retained for each proceeding and none of
these proceedings is expected to have a material adverse impact on the Company's
results of operations or financial condition.
Item 2: Changes in Securities
------- ---------------------
(a) Not applicable
(b) Not applicable
(c) Not applicable
15
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Item 3: Defaults Upon Senior Securities
------- -------------------------------
(a) Not applicable
(b) Not applicable
Item 4: Submission of Matters to a Vote of Security Holders
------- ---------------------------------------------------
Not applicable.
Item 5: Other Information
------- -----------------
Not applicable
Item 6: Exhibits and Reports on Form 8-K
------- --------------------------------
(a) Exhibits
Exhibit 10.43 Amendment to the Employment Agreements between the Company
and Craig B. Reynolds dated August 8, 2000, filed as Exhibit 10.43 to this
Form 10-Q for the quarter ended September 30, 2000.
Exhibit 10.44 Amendment to the Employment Agreements between the Company
and Craig B. Reynolds dated August 16, 2000, filed as Exhibit 10.44 to this
Form 10-Q for the quarter ended September 30, 2000.
Exhibit 10.45 Third Amendment to the Credit Agreement by and among
RESPIRONICS, INC. as the Borrower, THE BANKS PARTY HERETO, as the Lenders
hereunder, PNC BANK, NATIONAL ASSOCIATION as the Issuing bank, PNC BANK,
NATIONAL ASSOCIATION, as the Administrative Agent, BANK of AMERICA, N.A. as
the Syndication Agent and FIRST UNION NATIONAL BANK as the Documentation
Agent, dated as of July 7, 2000, filed as Exhibit 10.45 to this Form 10-Q
for the quarter ended September 30, 2000.
Exhibit 15 Acknowledgement of Ernst & Young, LLP.
(b) Reports on Form 8-K
Not applicable
16
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RESPIRONICS, INC.
Date: November 13, 2000 /s/ Daniel J. Bevevino
------------------------- -------------------------
Daniel J. Bevevino
Vice President, and Chief
Financial and Principal
Accounting Officer
Signing on behalf of the
registrant and as Chief
Financial and Principal
Accounting Officer
17
